Monthly

[Pages:16]Monthly ECONOMIC UPDATE

Economic Adviser's Wing Finance Division

Government of Pakistan

April 2020

CONTENTS

Page #

1. Economy at the Glance ...........................................................................................

1

2. Real Sector ..............................................................................................................

1

2.1 Agriculture ..................................................................................................

1

2.2 Manufacturing.............................................................................................

3

3. Inflation...................................................................................................................

4

4. Fiscal .......................................................................................................................

5

5. Monetary ................................................................................................................

6

6. External Sector........................................................................................................

7

7. Performance of KSE Index .....................................................................................

9

8. Covid-19 and Government Response...................................................................... 10

9. Conclusion ............................................................................................................. 11

10. Economic Indicators ............................................................................................... 13

1. Economy at the glance

Global growth is projected at -3.0 % in 2020. Growth in the advanced economy group, is projected at -6.1 % in 2020. Most economies of the developed countries are projected to contract this year, including the United States (-5.9 %), Japan (-5.2 %), the United Kingdom (-6.5 %), Germany (-7.0 %), France (-7.2 %), Italy (-9.1 %), and Spain (-8.0 %). Emerging Asia is projected to be the only region with a positive growth rate in 2020 (1.0 %), albeit more than 5 percentage points below its average in the previous decade. In China, the economy is projected to grow at a subdued 1.2 % in 2020, India (1.9 %) and Indonesia (0.5 %) and others are forecast to experience large contractions. For Pakistan, real GDP growth projection varies from negative to positive. IMF estimates -1.5%, however, Pakistan Bureau of Statistics will come up with the GDP estimates in the National Account Committee meeting expected to be held in the mid of May.

The Group of 20 nations on 15-04-2020 announced one year debt standstill for the world's poorest nations to deal with Covid-19 as global economy plunged into the worst recession of the century. The G20, also reiterated the pledge to deploy "all available policy tools" to deal with the health and economic crisis caused by Covid-19.

The IMF has termed the recent crisis as "Great Lockdown," that is expected to slash $9 trillion of global growth. The world economy contracts by three percent this year, the most severe downturn since the Great Depression in 1930s. The situation could get much worse if the pandemic lingers into the second half of the year or resurges. IMF estimates that 20 governments already have committed about $8 trillion towards combating the virus and providing economic lifelines to households and companies struggling to tackle the crisis.

According to the latest data for July-March, FY2020 for Pakistan's economy, the external sector continues to improve on account of modest growth in both exports (1.1%) and workers' remittances (6%) along with significant reduction in imports (16.2%) and increase in FDI (137.3%). Current account deficit is reduced by 73.1% to $ 2.8 bn (1.3 % of GDP) against $ 10.3bn last year (4.7 % of GDP).

In order to reduce the impact of Corona virus outbreak, Government has announced Rs.1.2 trillion relief and Stimulus package. It aims to provide relief to vulnerable, SMEs industry, construction industry, deferment of utility bills of lower income groups, deferment of principal and interest for business and reduction in fuel prices etc. Similarly, SBP has decided to cut the policy rate to 9 percent. SBP has also provided various incentives to manufacturing sector and exporters. Joint efforts of Government and SBP will provide a cushion to industry in this dwindling situation.

MONTHLY PERFORMANCE, APRIL 2020

2. Real Sector

2.1 Agriculture

The agriculture sector's outcome for FY2019-20 has been lower than initial expectations. The unfavourable weather conditions and pest attacks have undermine the cotton production i.e. 9.45

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Monthly Performance, April 2020, Economic Adviser's Wing

million bales in FY2019-20. The improvement in area under wheat cultivation (8.9 million hectare) as compared to last year (8.7 million hectare) is a favourable development. The recent locusts attack has raised concerns for the wheat crop in major parts of provinces of Punjab and Sindh. This coupled with unprecedented rain fall at harvesting time during March-May may result wheat production slight lower than the FCA target of 27.0 million tonnes.

The availability of inputs remained adequate during Rabi season. Canal water withdrawals increased over same period last year. Moreover, conducive rainfall was recorded during the wheat sowing season as compared to last year. Additionally, drop in temperatures during the germination and tillering stage of the wheat crop would prove beneficial in enhancing its yields. Agriculture credit also registered a significant increase of 13.3 percent during FY20 (Jul-March) that reached to Rs 912 billion compared to Rs 804 billion in same period last year.

Agriculture Credit Disbursement (Jul-Mar) (Rs Billion)

FY20 FY19

Total

Commercial Banks

DPBs

Microfinance Banks

ZTBL

Islamic Banks

Microfinance Institutions/RSPs

PPCBL

169.3 143.3

115.2 114.7

52.5 45.1

31.0 22.4

22.7 24.1

6.4 5.5

515.3 450.0

804.9

912.2

0 100 200 300 400 500 600 700 800 900 1000

Fertilizer, another critical input, showed

mixed trend. Urea off-take increased,

whereas DAP off-take continued to slide 3000 downwards as Urea remained cheaper than

DAP.

2000

Wheat is a major food crop and its

adequate production ensures food security

in the country. Government has increased 1000 wheat support price to Rs 1400 per 40 kg

after a gap of five years which would

increase income of the farmer. The cereal

0

markets are expected to remain normal in

coming months.

Fertilizer Offtake Rabi (Oct-Feb) (000 Tonnes)

2625 2567

2018-19

2019-20

1098 1000

Urea

DAP

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Monthly Performance, April 2020, Economic Adviser's Wing

2.2 Manufacturing

Large Scale Manufacturing (LSM) witnessed decline of 0.9% in February, 2020 on MOM basis (increase of 7.23% in Jan 2020). LSM on YOY decreased by 1.15% in Feb 2020 (-1.5% Feb 2019). LSM during Jul-Feb FY 2020 stood at -3.03 % (-1.59% last year).

During Jul-Mar FY20, total cement dispatches in the country increased by 7.1% to 37.035Mt (34.593Mt last year). Domestic dispatches increased by 3.82% to 30MT during Jul-Mar FY20 while exports were up 25.63% to 6.5MT.

LSM Index

Febryary

January

December

November

October

September

August

July

0

20

2019-20 2018-19

40

60

80

100 120 140 160 180

Source: Pakistan Bureau of Statistics

Automobile industry continued to suffer from low sales during Jul-Mar FY20. Total car production and sales plunged to -47.9% and -46.8% respectively. While total trucks and buses decreased by 43.7% in production and 39.8% in sales.

Sectors showing growing trend

Manufacturing Sector

Textile Food, Beverages & Tobacco Non-Metallic Mineral Products Fertilizers Leather Products Paper & Board Rubber Products Wood Products Source: Pakistan Bureau of Statistics

Weight

20.915 12.37 5.364 4.441 0.859 2.314 0.262 0.588

(%) Change 2018-19 (Jul-Feb) 2019-20 (Jul-Feb)

-0.15

0.37

-1.03

0.71

-3.99

4.58

4.90

5.99

0.21 -3.18

10.52 5.21

3.09

4.74

-25.82

6.02

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Monthly Performance, April 2020, Economic Adviser's Wing

Sectors showing dismal performance are

Manufacturing Sector

Weight

Coke & Petroleum Products Pharmaceuticals Chemicals Automobiles Iron & Steel Products Electronics Engineering Products Source: Pakistan Bureau of Statistics

5.514 3.62 1.717 4.613 5.392 1.963

0.4

(%) Change

2018-19 (Jul-Feb) 2019-20 (Jul-Feb)

-5.50

-13.57

-8.71

-5.81

-4.01

-0.96

-6.02

-34.98

-10.26

-7.00

36

-7.85

7.57

-2.73

Measures to Support Industrialization

In wake of Covid-19 government has announced a special package to provide stimulus to construction sector. Package includes amnesty scheme, tax exemptions and Rs. 30 bn subsidy for Naya Pakistan.

SBP allowed manufacturing sector an advance payment of upto $ 25,000 ($10,000 earlier) for import of raw materials and spare parts.

Capital Conservation Buffer (CCB) has been reduced to 1.5% (2.5% earlier). This will enable banks to lend an additional amount of Rs. 800 bn to businesses and households.

SBP has given relaxation of one year in repayment of principle amount under various refinance schemes.

Credit limit to SMEs has been permanently increased to Rs. 180 mn (Rs. 125 mn earlier).

SBP has announced a temporary refinance scheme to support the employment of workers. All businesses which do not layoff their employees during Apr-Jun 2020 will be given loans with upto 5% mark-up during this period.

Borrowing has been further eased by SBP by bringing Interest rate to 9% from 11%.

Power Division has released Rs. 144.9 bn uptil 20th April 2020 out of allocated Rs. 226.5 bn subsidy to ensure uninterrupted electric supply to both consumers and producers.

Petroleum Division has released Rs. 22.2 bn uptil 20th April 2020 for zero rated industrial sector out of allocated Rs. 24 bn subsidy for the purpose.

3. Inflation

The inflation measured by the Consumer Price Index (CPI) has downward trend for a second month in a row due to a combination of factors including improvement in supply of eatables and reduction in energy prices. Inflation rate fell to 10.2% in March from 12.4% in the previous month. On month-on-month basis, it increased by 0.04% in March 2020. During Jul-March FY 2020, CPI inflation reached to 11.53% (6.31% last year).

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Monthly Performance, April 2020, Economic Adviser's Wing

Year on Year CPI (%)

16

14.6

14

12.7 12.6

12

10.5 11.4 11.0

10 8.6

8.3

8.4

8.0

8.4

8

12.4 10.2

6

4

2

0

Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20

Sensitive price Indicator (SPI) which monitors the price movement of 51 essential items on weekly basis is showing an increase of 0.1% during the week ending on 16 April 2020. Price of 16 items recorded increase which include Masoor Pulse (8%), Chicken (4.9%), Maash Pulse (4.5%), Potato (4.4%), Rice IRRI (3.3%) Mung Pulse (1.2%) and Tomato (1%). Prices of eight items recorded decline which includes Onions (9.1%), Garlic (8.9%), Eggs (4.8%), LPG (1.7%) Wheat Flour (1.4%) and Sugar (0.2%), while prices of 27 items remained stable.

4. Fiscal

Prudent fiscal management have positive effect on fiscal indicators during first eight months of current fiscal year. Overall fiscal deficit reduced to 3.7% of GDP (Rs.1,613 bn) during Jul-Feb, FY2020 against 4.6% (Rs.1,761 bn) last year. Similarly, Primary balance posted surplus of Rs 104 bn during Jul-Feb, FY2020 (0.2 % of GDP) against the deficit of Rs 474 bn (1.2 %of GDP) last year.

Fiscal Indicators % of GDP

FY2019 FY2020 0.2

-1.2

On expenditure front, first eight months of current fiscal year witnessed a significant rise of 38% in federal PSDP to stand at Rs.392 bn against Rs.284 bn in the same period last year. With regard to PSDP authorization, it went up by 5% to Rs. 471 bn (as on 10-04-2020) as against Rs. 449 bn last year.

-3.7 -4.6 Fiscal deficit

Primary balance

On revenue side, FBR tax collection grew by 13.3% to Rs.3060.5 bn during Jul-March, FY2020 against Rs.2702.4 bn in the same period of FY2019. During first nine months of current fiscal year, domestic tax collection increased by 17.4 % while revenue generation from import side (customs duty) declined by 4.9%.

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Monthly Performance, April 2020, Economic Adviser's Wing

2,195.9

FBR Tax collection (Rs.bn)

Domestic Taxes FED

Direct Taxes Customs

2,702.4

2,579.0

Sales Tax Grand Total

3,060.5

993.2 1,039.7 162.9

506.5

1,142.3 1,250.2

481.5 186.5

FY2019

Jul-Mar Source: Federal Board of Revenue

FY2020 Jul-Mar

The fiscal performance till now indicates that, fiscal consolidation is on track. However, managing fiscal accounts under COVID-19 crisis would be challenging due to economic slowdown and higher expenditures under health and social sectors.

5. Monetary

Monetary Policy Committee decided to cut the policy rate by a further 200 basis points to 9% due to slowdown in global and domestic economic activity under the pandemic. Resultantly, cumulative interest rate has been cut by 4.25 % in one month.

Money supply (M2) has witnessed 7.81 % growth (Rs.1,390.77 bn) during Jul-27th March, FY 2020 against the growth of 5.08 % (Rs.812.17 bn) in same period last year. Net Foreign Assets (NFA) increased by Rs.909.15 bn as compared to the contraction of Rs.613.74 bn in last year while NDA of the banking sector increased by Rs.481.62 bn as compared to the expansion of Rs. 1,425.9 bn last year. Private Sector has borrowed Rs. 315.0 bn against the borrowing of Rs. 608.9 bn in last year.

3,000.0 2,500.0 2,000.0 1,500.0 1,000.0

500.0 -

(500.0) (1,000.0) (1,500.0)

Credit to Private Sector Net Domestic Assets of the Banking System Broad Money (M2)

Net Government Sector Borrowings Net Foreign Assets of the Banking System

Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20

FY2019

Flows (Rs Billion)

FY2020

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Source: State Bank of Pakistan Monthly Performance, April 2020, Economic Adviser's Wing

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